The CSR Newsletters are a freely-available resource generated as a dynamic complement to the textbook, Strategic Corporate Social Responsibility: Sustainable Value Creation.

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Monday, January 28, 2013

Strategic CSR - Walmart & Nike

The articles in the two urls below (almost exactly a year apart) offer a contrast in responses to similar events. The article in the first url describes how Nike was able to transform negative perceptions about it as a sweatshop into a market opportunity by fully disclosing details about its supply chain:

“In April 2005, Nike surprised the business community by suddenly releasing its global database of nearly 750 factories worldwide. No laws presently require a company to disclose the identity of its factories or suppliers within global supply chains. Yet, between the early 1990s and 2005, Nike went from denying responsibility for inhumane conditions in its factories to leading other companies in full disclosure — a strategic shift that illustrates how a firm can leverage increased transparency to mitigate risk and add value to the business.”

In contrast, the article in the second url below describes an announcement by Walmart last week in reaction to the Bangladeshi factory fire last year, in which 112 workers died, but who were subsequently found to be making clothes for Walmart (according to the firm, without its knowledge):

“Wal-Mart Stores Inc. is warning suppliers that it is adopting a ‘zero tolerance policy’ for violations of its global sourcing standards, and soon plans to immediately sever ties with anyone who subcontracts work to factories without the retailer's knowledge.”

The contrast is interesting in terms of what it says about best-practice CSR principles in building an ethical supply chain. My understanding of best-practice is that firms should audit suppliers on a regular basis, but seek to work with them when problems are identified, rather than dumping them the moment they do something wrong (see also: Strategic CSR – GAP). Given that many problems occur in the supply chain due to firms embedding the wrong kinds of incentives into their relationships with their suppliers (i.e., incentivizing low-cost, fast-turnaround production, which encourages low pay and lots of overtime, even while asking suppliers to sign codes of conduct that promise to do the opposite), suppliers should not necessarily be punished (at least, not immediately) for code of conduct violations. Rather, an open, transparent relationship should be developed where both sides are honest about what they need and can offer. When something goes wrong, the firm should sit down with the supplier and work out a plan of action with realistic goals over a period of months—kind of like the policy Walmart is rejecting with its recent announcement:

“The tougher new policies replace the Bentonville, Ark., retailer's prior ‘three strikes’ approach to policing suppliers, which gave the suppliers three chances to address problems before being terminated.”

Nike now gets this, but Walmart does not. The firm’s new policy is due to take effect on March 1.

Take care

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Just Do It: How Nike Turned Disclosure into an Opportunity
January 23, 2012
Network for Business Sustainability

Wal-Mart Toughens Supplier Policies
By Shelly Banjo
January 22, 2013
The Wall Street Journal
Late Edition – Final